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Section 1: 8-K/A (8-K/A)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549  
FORM 8-K/A
(Amendment No. 1)  
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 30, 2019 (October 24, 2019)
 
HIGHLANDS REIT, INC.
(Exact Name of Registrant as Specified in its Charter)  
 
Maryland
 
000-55580
 
81-0862795
(State or Other Jurisdiction
of Incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)

332 S Michigan Avenue, Ninth Floor
Chicago, IL 60604
(Address of Principal Executive Offices)
(312) 583-7990
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed Since Last Report)  
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 
¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 
¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock
 
N/A
 
N/A
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company þ
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. þ






Explanatory Note

On October 24, 2019, Highlands REIT, Inc. (the “Company”) through The Muse Owner, LLC (the “Purchaser”), a wholly owned subsidiary of the Company, completed the purchase (the “Acquisition”) of certain real property and improvements located at 2270 South University Boulevard, Denver, Colorado (“The Muse”), pursuant to the terms and conditions of the Purchase and Sale Agreement, dated as of September 26, 2019, by and between Hill University Partners Owner, LLC and the Purchaser.

On October 30, 2019, the Company filed a Current Report on Form 8-K regarding the Acquisition (the “Original Form 8-K”) and stated that the financial statements required under Item 9.01 of Form 8-K would be filed no later than 71 days after the date on which the Original Form 8-K was required to be filed. This Current Report on Form 8-K amends Items 9.01(a) and 9.01(b) of the Original Form 8-K and contains the required financial statements relating to the Acquisition.

Item 9.01 Financial Statements and Exhibits

These financial statements and exhibits are being filed solely to provide the required statements of revenues and certain operating expenses under Rule 8-06 of Regulation S-X with respect to the Acquisition. Additionally, this report presents the required pro forma financial information reflecting the impact of the Acquisition on the Company. The Company qualifies as a real estate investment trust for federal income tax purposes and as such, the estimated taxable operations results are excluded from this report.

Pursuant to a letter dated December 20, 2019 (the “Relief Letter”), the Company has obtained relief from the Staff of the Securities and Exchange Commission, pursuant to its authority under Note 5 of Rule 8-01 of Regulation S-X, from the requirements of Rule 8-06 of Regulation of S-X to provide certain audited historical financial statements that would otherwise be required in connection with its acquisition of The Muse. In accordance with the Relief Letter, the Company has substituted unaudited statements of revenues and certain operating expenses for the year ended December 31, 2018 in lieu of the audited statements of revenues and certain operating expenses for the year ended December 31, 2018 required by Rule 8-06 of Regulation S-X.

The Company’s results with respect to the Acquisition may be materially different from those expressed in this report due to various factors, including but not limited to those discussed under Item 1A. Risk Factors in our annual report on Form 10-K for the year ended December 31, 2018.

(a) Financial Statements of Real Estate Acquired
The following Unaudited Statements of Revenues and Certain Operating Expenses for The Muse are set forth in Exhibit 99.1, which is incorporated herein by reference.
Unaudited Statements of Revenues and Certain Operating Expenses for The Muse for the six months ended June 30, 2019 and year ended December 31, 2018.

(b) Pro Forma Financial Information
The following unaudited pro forma financial statements are set forth in Exhibit 99.2, which is incorporated herein by reference.
Unaudited pro forma condensed consolidated balance sheet as of June 30, 2019
Unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 2019 and
Unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2018.

(d) Exhibits
99.1 Unaudited Statements of Revenues and Certain Operating Expenses for The Muse for the six months ended June 30, 2019 and year ended December 31, 2018
99.2     Unaudited Pro Forma Condensed Consolidated Financial Statements for the Company




    









SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Signature
Date
/s/ Richard Vance
January 9, 2020
Name: Richard Vance
 
Title: President and Chief Executive Officer (Principal Executive Officer)
 

                            



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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1














THE MUSE

FINANCIAL STATEMENTS

Six Months Ended June 30, 2019 (unaudited) and
Year Ended December 31, 2018 (unaudited)



















The Muse
Unaudited Statements of Revenues and Certain Operating Expenses for the Six Months Ended June 30, 2019 and for the Year Ended December 31, 2018
(in thousands)

 
 
Six Months Ended June 30, 2019
 
Year Ended December 31, 2018
Revenues
 
 
 
 
  Rental income
 
$
1,261

 
$
978

  Other income
 
128

 
92

     Total revenues
 
1,389

 
1,070

Certain operating expenses
 
 
 
 
  Property operating expenses
 
349

 
723

  Real estate taxes
 
82

 
164

     Total certain operating expenses
 
431

 
887

Revenues in excess of certain operating expenses
 
$
958

 
$
183

 
 
 
 
 
See accompanying notes to the statements of revenues and certain operating expenses




The Muse
Notes to Unaudited Statements of Revenues and Certain Operating Expenses for the Six Months Ended June 30, 2019 and for the Year Ended December 31, 2018
(Dollar amounts stated in thousands)

1. Organization

On October 24, 2019, Highlands REIT, Inc. (the “Company”), through The Muse Owner, LLC (the “Purchaser”), a wholly-owned subsidiary of the Company, completed the purchase of certain real property and improvements located at 2270 South University Boulevard, Denver, Colorado (the “Property”) for a gross purchase price of $48.7 million, exclusive of closing costs. The property consists of a five-story building with a total of 120 units and an underground parking garage with 137 spaces. The property was completed in early 2018 and has gross leasable area of approximately 104,000 square feet.

2. Basis of Presentation

The unaudited statements of revenue and certain operating expenses (“the Statements”) have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and with the provisions of SEC Rule 8-06 of Regulation S-X, which requires certain information with respect to real estate operations to be included with certain filings with the SEC.

In accordance with a request for relief granted by the SEC, the Company has substituted unaudited statements of revenues and certain operating expenses for the year ended December 31, 2018 for the audited statements of revenues and certain operating expenses for the year ended December 31, 2018 required by Rule 8-06 of Regulation S-X.

The Statements are not intended to be a complete presentation of the revenues and expenses for the Property. The Statements exclude certain expenses such as interest, depreciation and amortization, non-recurring professional fees, corporate expenses, and other revenues and expenses not directly related or comparable to, or expected to be incurred in, the future operations of the Property.

The revenues and operating expenses for the year ended December 31, 2018 are not indicative of future operating results because construction and leasing of the Property was not complete until 2019. Development of this property was completed during 2018 and the certificate of occupancy was granted on June 4, 2018. Total revenues and economic occupancy for selected months was as follows:
 
 
June 30, 2018
 
September 30, 2018
 
December 31, 2018
 
March 31, 2019
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
66

 
$
170

 
$
208

 
$
232

 
$
235

Occupancy
 
24.3
%
 
62.5
%
 
76.5
%
 
85.3
%
 
86.4
%

The Company is not aware of any other material factors relating to the Property that would cause this financial information not to be indicative of future operating results.

3. Summary of Significant Accounting Policies

Revenue Recognition

The Property leases its operating property to tenants under one-year agreements that are classified as operating leases. The Property recognizes the lease payments provided for under the leases over the lease term. In addition to lease payments, tenants are subject to leases whereby the tenant is responsible for fixed minimum lease payments to the Property, as well as directly paying certain costs and expenses associated with occupancy to third party service providers. Such direct payments to third parties are not recorded as revenue and expense by the Property. In addition, other income includes lease cancellation fees, parking and other lease income.





The Muse
Notes to Unaudited Statements of Revenues and Certain Operating Expenses for the Six Months Ended June 30, 2019 and for the Year Ended December 31, 2018
(Dollar amounts stated in thousands)

Expense Recognition

Property operating expenses represent the direct expenses of operating the Property and include repairs and maintenance, insurance, and other property expenses that are expected to continue in the ongoing operations of the Property. Expenditures for maintenance and repairs are charged to operations as incurred.

Use of Estimates

The preparation of the Statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amounts of revenues and certain expenses during the reporting periods presented. The estimates, judgments and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from those estimates under different assumptions and conditions.




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Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit


Exhibit 99.2

Highlands REIT, Inc.
Pro Forma Condensed Consolidated Financial Statements

The following unaudited pro forma condensed consolidated financial statements have been prepared to comply with Rule 8-05 of Regulation S-X, as promulgated by the SEC. These unaudited pro forma condensed consolidated financial statements of the Company have been prepared from the condensed consolidated financial statements and notes thereto presented in the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2019 (the “Second Quarter Form 10-Q”)
and Annual Report on Form 10-K for the year ended December 31, 2018, (the “2018 Form 10-K”) and should therefore be read in conjunction with the Second Quarter Form 10-Q and the 2018 Form 10-K. These unaudited pro forma condensed consolidated financial statements are presented as if the Acquisition (as defined below) was completed, along with the pro forma adjustments associated with the Acquisition, as of June 30, 2019 for purposes of the unaudited pro forma condensed consolidated balance sheet, and as of January 1, 2018 for purposes of the unaudited pro forma condensed consolidated statement of operations. Our pro forma condensed consolidated financial statements are presented for informational purposes only and are based on information and assumptions we consider appropriate and reasonable, and do not purport to (i) represent our financial position had the Acquisition reflected in these unaudited pro forma condensed consolidated financial statements occurred on June 30, 2019, (ii) represent the results of our operations had the Acquisition and other adjustments described in these unaudited pro forma condensed consolidated financial statements occurred on January 1, 2018 or (iii) project or forecast our financial position or results of operations as of any future date or for any future period, as applicable. The unaudited pro forma condensed consolidated financial statements include all adjustments that are normal and recurring in management’s opinion.

Asset Acquisition

On October 24, 2019, Highlands REIT, Inc. (the “Company”) through The Muse Owner, LLC, a wholly-owned subsidiary of the Company, completed the purchase of The Muse (the “Acquisition”), a 104,000 square foot multi-family asset located at 2270 South University Boulevard, Denver, Colorado (the “Property”) for a gross purchase price of $48.7 million, exclusive of closing costs, which was funded through cash on hand. The seller is not affiliated with the Company.




Highlands REIT, Inc.
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2019
(Unaudited, in thousands except share amounts)
 
Highlands REIT, Inc. Historical (a)
 
The Muse (b)
 
Pro Forma Total
Assets
 
 
 
 
 
Investment properties
 
 
 
 
 
Land
$
73,279

 
$
5,303

(c)
$
78,582

Building and other improvements
223,972

 
42,809

(c)
266,781

Construction in progress
51

 

 
51

Total
297,302

 
48,112

 
345,414

Less accumulated depreciation
(51,550
)
 

 
(51,550
)
Net investment properties
245,752

 
48,112

 
293,864

Cash and cash equivalents
122,751

 
(48,803
)
(d)
73,948

Restricted cash and escrows
2,572

 

 
2,572

Accounts and rents receivable
5,121

 

 
5,121

Intangible assets, net
669

 
691

(c)
1,360

Deferred costs and other assets, net
4,498

 

 
4,498

Total assets
$
381,363

 
$

 
$
381,363

Liabilities
 
 
 
 
 
Debt, net
$
74,795

 
$

 
$
74,795

Accounts payable and accrued expenses
8,996

 

 
8,996

Intangible liabilities, net
902

 

 
902

Other liabilities
2,039

 

 
2,039

Total liabilities
86,732

 

 
86,732

Commitments and contingencies
 
 
 
 
 
StockholdersEquity
 
 
 
 
 
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 875,875,109 shares issued and outstanding as of June 30, 2019
8,759

 

 
8,759

Additional paid-in capital
1,408,925

 

 
1,408,925

Accumulated distributions in excess of net income
(1,123,053
)
 

 
(1,123,053
)
Total stockholders’ equity
294,631

 

 
294,631

Total liabilities and stockholders' equity
$
381,363

 
$

 
$
381,363






Highlands REIT, Inc.
Notes to Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2019
(Unaudited, in thousands)

(a)
Historical unaudited financial information obtained from Highlands REIT, Inc. Quarterly Report on Form 10-Q for the six months ended June 30, 2019.
(b)
The Company records the assets acquired related to the Acquisition at the relative fair values in accordance with Accounting Standards Codification Section 805, Business Combinations (as disclosed in the Company’s Annual Report on Form 10-K), as if the Acquisition was completed on June 30, 2019. The Property qualified as an asset acquisition.
(c)
The following table summarizes the estimated fair value of the property's assets acquired:
Land
 
$
5,302

Buildings and other improvements (i)
 
42,810

  Total investment property
 
48,112

Intangible assets (ii)
 
691

Total fair value of assets acquired
 
$
48,803

(i) Building and other improvements include capitalized transaction costs of $103.
(ii) Intangible assets, include in-place leases.
(d) Reflects the gross purchase price and acquisition costs before prorations and adjustments for the Acquisition.






Highlands REIT, Inc.
Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2018
(Unaudited, in thousands, except share and per share data)

 
Highlands REIT, Inc. Historical
 (a)
 
The Muse
 
Pro Forma Adjustments
 
Highlands REIT, Inc. Pro Forma
Revenues
 
 
 
 
 
 
 
Rental income
$
42,761

 
$
978

(b)
$

 
$
43,739

Other property income
748

 
92

(b)

 
840

Total revenues
$
43,509

 
$
1,070

 
$

 
$
44,579

Expenses
 
 
 
 
 
 
 
Property operating expenses
8,892

 
723

(b)

 
9,615

Real estate taxes
5,028

 
164

(b)

 
5,192

Depreciation and amortization
12,178

 

 
2,134

(c)
14,312

General and administrative expenses
12,603

 

 

 
12,603

Provision for asset impairment
4,667

 

 

 
4,667

Total expenses
$
43,368

 
$
887

 
$
2,134

 
$
46,389

Gain on sale of investment properties
27,863

 

 

 
27,863

Income from operations
$
28,004

 
$
183

 
$
(2,134
)
 
$
26,053

Interest income
497

 

 

 
497

Loss on extinguishment of debt
(1,199
)
 

 

 
(1,199
)
Other income
30

 

 

 
30

Interest expense
(2,559
)
 

 

 
(2,559
)
Income before income taxes
$
24,773

 
$
183

 
$
(2,134
)
 
$
22,822

Income tax benefit
155

 

 

 
155

Net income
$
24,928

 
$
183

 
$
(2,134
)
 
$
22,977

Net income per common share, basic and diluted
$
0.03

 
 
 
 
 
$
0.03

Weighted average number of common shares outstanding, basic and diluted
871,177,934

 
 
 
 
 
871,177,934






Highlands REIT, Inc.
Notes to Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2018
(Unaudited, in thousands, except share and per share data)

(a)
Historical financial information obtained from the Highlands REIT, Inc. Annual Report on Form 10-K for the year ended December 31, 2018.
(b)
Reflects the operating results attributable to the Property for the year ended December 31, 2018.
(c)
Reflects depreciation and amortization expense on the Property during the year ended December 31, 2018. The Company records depreciation and amortization on a straight-line basis over the estimated useful lives of 30 years for building and improvements, 5-15 years for furniture, fixtures and equipment and site improvements and one year for the in-place leases (intangible assets). 

The following table details the depreciation and amortization expense for the year ended December 31, 2018:
Depreciation expense
 
$
1,443

Amortization expense
 
691

Total
 
$
2,134









Highlands REIT, Inc.
Pro Forma Condensed Consolidated Statement of Operations for the six months ended June 30, 2019
(Unaudited, in thousands, except share and per share data)

 
Highlands REIT, Inc. Historical (a)
 
The Muse
 
Pro Forma Adjustments
 
Highlands REIT, Inc. Pro Forma
Revenues
 
 
 
 
 
 
 
Rental income
$
20,439

 
$
1,261

(b)
$

 
$
21,700

Other property income
220

 
128

(b)

 
348

Total revenues
$
20,659

 
$
1,389

 
$

 
$
22,048

Expenses
 
 
 
 
 
 
 
Property operating expenses
3,889

 
349

(b)

 
4,238

Real estate taxes
2,623

 
82

(b)

 
2,705

Depreciation and amortization
5,459

 

 
721

(c)
6,180

General and administrative expenses
7,465

 

 

 
7,465

Total expenses
19,436

 
431

 
721

 
20,588

Gain on sale of investment properties, net
8,841

 

 

 
8,841

Income from operations
$
10,064

 
$
958

 
$
(721
)
 
$
10,301

Interest income
767

 

 

 
767

Interest expense
(1,765
)
 

 

 
(1,765
)
Net income
$
9,066

 
$
958

 
$
(721
)
 
$
9,303

Net income per common share, basic and diluted
$
0.01

 
 
 
 
 
$
0.01

Weighted average number of common shares outstanding, basic and diluted
874,573,967

 
 
 
 
 
874,573,967






Highlands REIT, Inc.
Notes to Pro Forma Condensed Consolidated Statement of Operations for the six months ended June 30, 2019
(Unaudited, in thousands, except share and per share data)

(a)
Historical financial information obtained from Highlands REIT, Inc. Quarterly Report on Form 10-Q for the six months ended June 30, 2019.
(b)
Reflects the operating results attributable to the Property for the period January 1, 2019 through June 30, 2019, which were the periods prior to the Company’s acquisition of the Property.
(c)
Reflects depreciation and amortization expense on the Property for the period January 1, 2019 through June 30, 2019. The Company records depreciation and amortization on a straight-line basis. The Company records depreciation and amortization on a straight-line basis over the estimated useful lives of 30 years for building and improvements, 5-15 years for furniture, fixtures, equipment and site improvements and one year for the in-place leases (intangible assets). 

The following table details the depreciation and amortization expense for the six months ended June 30, 2019 which assumes the intangible assets were fully amortized as of December 31, 2018:
Depreciation and amortization expense
 
$
721



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